Business warns Cameron against huge EU gamble

Britain's Prime Minister David Cameron leaves Number 10 Downing Street to attend Prime Minister's Questions at parliament in London January 16, 2013.Olivia Harris

LONDON (Reuters) - Prime Minister David Cameron's bid to redefine Britain's relationship with Europe risks stalling foreign investment and throttling the growth of many companies, leading business figures have warned.

Cameron will deliver a speech in Amsterdam on Friday setting out his plans for Britain's future in the European Union, which is expected to focus on wresting powers back from Brussels.

Executives such as Martin Sorrell, who heads the world's largest advertising company WPP, and Mike Rake, chairman of BT and easyJet, said they understood Britons' frustrations with the EU, but warned that diluting the relationship could backfire and end in Britain leaving the bloc, its main trading partner.

That would make Britain a less attractive place to do business, they said.

"This is not political, or intending to be a threat," Rake, who is also deputy chairman of Barclays, told Reuters. "This is a reality of how businesses have to operate.

"If businesses in Europe or outside, who look upon the UK as a more practical, pragmatic, flexible environment in which to work, if they feel that the thing is beginning to spin out of control politically, then of course they will start to say hang on, we ought to wait."

Facing growing Euroscepticism at home and in his own Conservative party, Cameron will set out his plans for Britain's future in Europe in a long-awaited speech in Amsterdam on Friday.

He is likely to identify major policy areas where he wants to claw back powers - such as employment, social and criminal law - and then offer a referendum, possibly in 2018, to vote on the new terms.

Some are pushing for a referendum that could, if the "no" vote wins, end Britain's 40-year membership in the club, leaving the world's sixth largest economy to deal with the EU on similar terms to outsiders Switzerland and Norway, which have to follow much of the bloc's rules but have no power to influence them.

With polls showing a slim majority of Britons favouring an exit, critics, including many in the business community, say Cameron's tactics constitute a huge gamble.

"Uncertainty is the enemy of investment," said Vince Cable, business secretary from the pro-European junior coalition partner the Liberal Democrats. "This is a terrible time to have the diversion and uncertainty which build-up to a referendum would entail.

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All the executives who spoke to Reuters were sympathetic to Cameron's situation in that they want to see the bloc reformed, but they believe it is far better to do so from within the 27-country group than risk finding Britain on the outside.

"We're not going to be able to do anything if we're just sat there like Norway and Switzerland." Sorrell, chief executive of WPP, which has a market capitalisation of around $19 billion (11.8 billion pounds), told Reuters.

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Senior City figures have been quietly warning Cameron's aides about the "catastrophe" that would unfold if Britain were to exit the union, pointing out that international banks in London rely on a passport from regulators to trade into the EU.

One senior City figure who asked not to be named said Cameron's recent statements had raised real concern for him and his fellow bankers, because they feared the prime minister's high-stakes rhetoric would further damage London and leave it isolated.

"People are looking at it and saying, 'Would I be better off having my regulated entity in Frankfurt?'" he said.

At risk, critics argue, is around half of Britain's overall trade and foreign investments, the 3.5 million jobs that are linked to the export of goods and services to the EU, and a loss of influence in the wider world.

Some of the most outspoken comments in the business community have come from the auto industry, a sector that is still rebuilding from the shock of the financial crisis and which relies on European demand.

"Quitting the EU could be dangerous for Bentley," said Wolfgang Schreiber, CEO of the Volkswagen unit. "Such a move would probably inflict additional costs on our business through customs fees and also on our cross-border dealings with international suppliers.

"The UK auto industry is just rebounding. The British government is aware of that, and I can't imagine they would be willing to put that positive development at risk".

Ian Robertson, global sales chief for BMW, said Britain needed to remain a "strong and active member of the EU".

Not only are leading members of the business community concerned by the subject of the debate and where it could lead, they are also increasingly alarmed by the tone.

"Grandstanding is not going to endear us to other members of the club," said Sorrell. "There's a danger that we make too much noise about it, and they'll say, 'This is it, take it or leave it'."

With the debate around Europe often led by the more extreme eurosceptics in Cameron's Conservative Party, who characterise the EU as faceless bureaucrats imposing rules and regulations at will, the executives said they decided to speak out as few were making the case for Europe.

Some in the City of London might well have been reluctant to speak up, since many Britons give short shrift to the financial sector, which they blame for causing the financial crisis and subsequent recession and austerity measures.

Former prime minister Tony Blair, who sought closer ties with Europe during his 10 years in power but shied away from signing up to the single currency, has called on business leaders to campaign harder against a possible EU withdrawal.

"In this new world, to leverage power, you need the heft of the EU. It gives us a weight collectively that on our own we lack," he said in a speech late last year.

"Any U.S. president I know would regard Britain leaving as folly. The idea we would then seek new relationships with the likes of China and India is an especial illusion."

However, not everyone is convinced that speaking out in favour of Brussels is the right way to go.

John Longworth, the director general of the British Chambers of Commerce, which represents firms employing over 5 million people, said Britain could no longer stand still in Europe as the rest of the bloc integrated.

"There are businesses that are feeling that they're being made uncompetitive in the world market by the weight of European legislation," he said.

"Europe needs the UK because it over trades with the UK. We have actually got an extremely strong hand. And to have a negotiation, the other side has to believe that the prime minister is prepared to walk away."